Schiff: History Suggests Gold Will Skyrocket Again

The old adage “history repeats itself” has been applied to all facets of the investing world, but it’s especially apparent in the commodity world. With most assets displaying cyclical returns and seasonality, the history of many commodities is bound to repeat itself the following year. When it comes to gold, Peter Schiff believes that the phrase points the path to a major run up in gold that few investors will be counting on [for more gold news and analysis subscribe to our free newsletter].

Gold Drawing Historical Parallels

In 1976, gold had just finished bottoming out as a correction put an end to a multi-year bull run. Schiff notes that at this point in time the American economy was at a point where confidence was returning and investors where beginning to increase their risk appetite. Schiff then pulls segments of an article written in 1976 that continues to describe an economy eerily similar to that of today’s. The rest, is history, as gold would embark on a bull run that saw its price jump by more than 700% in just a few years.

Schiff goes on to point out that the sentiment for gold today is nearly identical to what it had been in the mid-’70s, as investors lost their love for the precious metal. With improving economies and consumer confidence on the rise, gold was seen as less of a safe haven in both time periods; with no yield and a plummeting price, investors quickly exited their precious metal positions. But, of course, those who exited in the mid-’70s unfortunately missed out on a massive rally the following years, a rally that Schiff argues can easily happen again [see also 50 Ways To Invest In Gold].

Past Performance Does Not Predict Future Results

Of course, anyone can cherry pick a time period to show that gold has the ability to rise again. But what Schiff failed to mention was gold’s sputtering stretch after the late-’70s and early-’80s bull run. Gold sat dormant for nearly 20 years, failing to establish any kind of major trend until it entered its recent bull run that 2013 is threatening to end. So if history does repeat itself, gold could very easily return to a period of dormancy.

Comparing today to the 1970s is an argument of apples and oranges. Gold just came off the longest bull run in its history and one of the most impressive runs any commodity has ever seen. This is all coupled with an economic environment that includes trillions in Fed printing. And while many have outlandish predictions for how the Fed printing will turn out, the truth is nobody knows for sure. Just ask John Paulson who has seen his gold bet lose him more than $800 million.

It was, after all, Schiff who predicted gold to rise to $5,000/oz in July of 2012; gold has dropped over 20% since that prediction. Schiff can easily come back and state that his timeline is much longer, but that falls under the category of heavy speculation. Anyone can make a prediction without a definitive timeline as long as they can morph it as time goes on, even a stopped clock is right twice a day [see also Jim Rogers: The Gold Correction Is Not Over].

The fact remains that while there are some striking similarities between today and the mid-’70s, our current economy is unlike what anyone has ever seen. We are truly wading into uncharted territory and it is nearly impossible to definitively say where we will be heading next. Those looking to buy into gold would do better to check on some fundamentals and the supply side of the equation to find where they think the appropriate bottom lies. Gold will probably rise once again, but the truth is nobody knows when that will happen and to what magnitude it will jump.

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well-IMHO, things are moving at a very highly increased speed to the 70′s. What took years now only takes months to happen. Charts on a daily basis can move big, especially compared to the 70′s, the ES has moved more than 50 points in a day where in the 70′s that was unheard of, even the crash of 1987 was small compared to some of the regular moves we have had in weeks. I have been trading since working on the floor of the CBOT in 1967 as a runner. The grain markets of the 80′s and 90′s generally had moves opposite of where it was really going just prior to big moves, I see that here and would not be surprise to see gold heading back up this fall. I believe John Paulson may be to low on his estimate of where gold will hit it’s high, but John failed to study the history of big moves, IMHO and missed the fact that big moves often have large counter moves just before them.